The Big Road

Building the transcontinental railroad was the greatest engineering feat of the nineteenth century. Was it also the biggest swindle?

Congress felt it had the right, the responsibility, and the power to go after the UP and the CP, because the companies would not have existed had Congress not loaned them government bonds and given them land grants. This has caused enormous controversy ever since. Both companies have been accused of stretching out their rail lines in order to get more land grants, a notion that is completely wrong. Despite 130 years of working to reduce the length of the lines, only a few miles have been shaved off, and that mainly caused by the fall of the level of the Great Salt Lake, which allowed the railroad to make a shortcut below Promontory Summit by erecting a causeway through the water.

The land grants are much misunderstood, especially by professors teaching American-history survey courses. The grants are denounced, lambasted, derided. In one of the most influential textbooks ever published, The Growth of the American Republic , Samuel Eliot Morison and Henry Steele Commager, who were two of the most distinguished historians of their day, if not of the whole twentieth century, wrote: “The lands granted to both the Union Pacific and the Central Pacific yielded enough to have covered all legitimate costs of building these roads.” A colleague of theirs, also distinguished, Fred A. Shannon, wrote, “The half billion dollars in land alone to the land grant railroads was worth more than the railroads were when they were built.”

It was the land grants and the bonds the government passed out that caused the greatest outrage, at the time and later. Still, although the concern of the investigators was justified—it was, after all, the people’s money that had been taken—there is another side.

The land grants never brought in enough to pay the bills of building either railroad, or even to come close. In California, from Sacramento to the Sierra Nevada range, and in Nebraska, the railroads were able to sell their strips of land at a good price, $2.50 per acre or more. But in most of Wyoming, Utah, and Nevada, the companies could never sell the land. Unless it had minerals on it, it was virtually worthless, even to cattlemen, who needed far more acres for a workable ranch. So too the vast amount of land the government still owns in the West.

The total value of lands distributed to the railroads was estimated by the Interior Department’s auditor as of November 1, 1880, at $391,804,610. The total investment in railroads in the United States in that year was $4,653,609,000. In addition, the government got to sell the alternate sections it held on to in California and Nebraska for big sums. Those lands would have been worth nearly nothing, or in many cases absolutely nothing, if it had not been for the building of the railroads. As the historian Robert Henry points out, the land grants did “what had never been done before—provided transportation ahead of settlement.”

Those controversial land grants never even came close to bringing in enough money to pay for building either railroad.

WITH REGARD TO THE GOVERNMENT bonds, generations of American students have also been offered a black-and-white view: The government was handing out a gift. Now for those of us who were in college in the 1950s, our classes were taught by professors who were likely to have taken their own graduate training in the 1930s and had thus been brought up to blame big business for everything that went wrong, especially the Great Depression. Those professors who were not New Deal Democrats were socialists, and they all knew that it helps the anti-big-business case if you can call those bonds a gift.

But they were not a gift. They were loans, to be paid back in 30 years or less. The requirement was met. In the final settlement with the railroads, in 1898 and 1899, the government collected $63,023,512 of principal plus $104,722,978 in interest, making a total repayment of $167,746,490 on an initial loan of $64,623,512. Professor Hugo Meyer of Harvard looked at those figures and quite rightly said, “For the government the whole outcome had been financially not less than brilliant.”

An automatic reaction that big business is always on the wrong side, corrupt and untrustworthy, is too easy, and the error is compounded if we fail to distinguish between incentives and fraud.

It is well, perhaps, to remember what Charles Francis Adams, Jr., a man of iron rectitude and the scourge of the Union Pacific’s financing, later wrote of the road’s original directors, after he became president of the line: “It is very easy to speak of these men as thieves and speculators. But there was no human being, when the Union Pacific railroad was proposed, who regarded it as other than a wildcat venture. The government did not dare to take hold of it. Those men went into the enterprise because the country wanted a transcontinental railroad, and was willing to give almost any sum to those who would build it. The general public refused to put a dollar into the enterprise. Those men took their financial lives in their hands, and went forward with splendid energy and built the road the country called for. They played a great game, and they played for either a complete failure or a brilliant prize.”

Both railroads have gone through major changes in the century and a third since they were built. The UP went into receivership in 1893, but as the country turned into the twenty-first century, it remained one of the oldest and richest corporations in the world, and its holdings included what had once been the CP.